Wachovia Corp. dropped a second shoe Tuesday in its Virginia takeover strategy, agreeing to acquire Central Fidelity Banks Inc. of Richmond for $2.3 billion in stock.

The announcement came just two weeks after Wachovia said it would buy Jefferson Bankshares of Charlottesville for $542 million.

The acquisitions of the two will make Winston-Salem, N.C.-based Wachovia the biggest bank in Virginia, with 335 branches and $9.9 billion of deposits.

Its share of deposits in the state would be 13.55%, ahead of Charlotte, N.C.-based NationsBank Corp.'s 13.52% and Richmond-based Crestar Financial Corp.'s 12.76%.

Going "from zero to No. 1 in two weeks gives them good critical mass... and gets them where they need to be in the state of Virginia," said John W. Coffey, an analyst with Robinson-Humphrey Co., Atlanta.

Moreover, the deal reinforces what Wachovia leaders had said about their finally joining the banking industry's acquisition scramble.

For five years, Wachovia had concentrated on growth from within. But mergers and acquisitions are high on the priority list as the company moves to build on its $47.5 billion asset base.

It said the Virginia deals would bring it to $60 billion, and to 17th among U.S. bank holding companies from 20th.

Wachovia chairman and chief executive officer L.M. "Bud" Baker said, "This is not the last transaction you're going to see."

The $10.6 billion-asset Central Fidelity has 244 branches and 221 automated teller machines in Virginia, and is among the top three in five of the largest Virginia banking markets.

If both deals go through, Wachovia said, it would rank as the 17th- largest U.S. banking company-it is now 20th-with $60.2 billion of assets.

Mr. Baker said Central Fidelity's customer-service-oriented culture, strong credit quality, efficient operations, and attractive geographic presence made it a very desirable merger partner.

"I would characterize it as love at first sight," he said.

Wachovia is paying a hefty 2.99 times book value for Central Fidelity. It said it expects to dilute earnings by about 13.5% in 1997 because of expected fourth-quarter merger charges covering both deals, totaling $136 million.

In 1998, the Central Fidelity merger would dilute earnings between 4% and 4.5% because of about $54 million in charges, Wachovia said. Both the Jefferson and Central Fidelity deals would add 3.8% to earnings in 1999.

Wachovia expects about $79 million in cost savings from Central Fidelity, or about 30% of the Richmond company's 1997 expense base, Mr. Baker said. The deal would add $10 million to annual revenues, 50% to be realized in 1998, and 100% in 1999, Wachovia officials said.

The Central Fidelity transaction would be accounted for as a pooling of interests. It provides for a tax-free exchange of 0.63 share of Wachovia stock for each share of Central Fidelity. The transaction was valued at about $39.45 per share.

The deal came together rapidly and was prompted by Wachovia's June 10 announcement that it intended to buy Jefferson. Central Fidelity itself had been examining an acquisition of Jefferson.

"Jefferson was one of our strategic options," said Lewis N. Miller Jr., Central Fidelity's chairman and chief executive officer. "That was taken away." Mr. Miller then made the approach to Wachovia.

Central Fidelity's deal with Wachovia skews some of the promises made to Jefferson. For instance, Jefferson chief executive officer O. Kenton McCartney was to run Wachovia's Virginia business after that deal closed. Now that job is slated for Central Fidelity's Mr. Miller. Mr. McCartney would have to settle for president.

In addition, acquiring both companies may raise some antitrust issues. For example, Wachovia would end up with 47% of the Charlottesville market.

Wachovia and Central Fidelity officials said it was too early to specify how many jobs might be lost because of the merger and how many branches would be sold or closed. Wachovia is still analyzing where Central Fidelity and Jefferson overlap and how operational and personnel functions might be streamlined and integrated, Mr. Baker said.

"Our intention is not to dismantle a franchise, it is to build an outstanding one for the future," he said. u

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